Comments

Sir, I quote from the lecture notes “The depreciation charge will be higher than it was before the revaluation, and the excess of
the new charge over the old charge should be transferred from the revaluation reserve to
retained earnings”. What would the double entry be? I understand we would DR the revaluation reserve to reduce it, but where would it go to? Would we DR retained earnings to reduce that as well?

We DR revaluation reserve, and CR retained earnings. As a result, the total reserves will not change, but the distributable reserve (retained earnings) is higher and the non-distributable reserve (revaluation reserve) is lower.

But surely if the depreciation charge is higher, would that not reduce distributable reserves as well? Does it not reduce the value of the asset and therefore what shareholders are entitled to (retained earnings)? Why does it not reduce retained earnings? Therefore total reserves should be reduced

Retained earnings and revaluation reserve are both reserves. so reducing revaluation reserve and increasing revenue reserve does not change the total owing to shareholders – it simply makes more or the reserves available for distribution as dividend.

It is the total reserves plus the share capital that represent the amount owing to shareholders.

I noticed that the depreciation expense and accumulated depreciation just kinda stopped after the 30 June 2003 mark. However, there is still another 6 months from 30 June 2003 to 31 Dec 2003, so shouldn’t the depreciation expense and accumulated depreciation be accounted again?

In this case, the depreciation expense is $30,720 while the accumulated depreciation is also $30,720.